<PAGE> 1
SCHWABFUNDS(R)
[LOGO]
SCHWAB
1000 FUND(R)
ANNUAL REPORT
AUGUST 31, 1996
[Photo of the Schwab Building, San Francisco, California]
<PAGE> 2
Dear Shareholder,
[Photo I'd like to take this opportunity to
of share some thoughts on mutual fund
Charles investing and tell you how we're working
R. Schwab] to expand our services to keep pace with
your changing needs.
First, however, I want to extend a personal welcome to the many thousands of new
shareholders who've joined the SchwabFunds Family(R) since our last report to
you. With your support, we've become one of the largest and fastest-growing
organizations in the mutual fund industry. Today, Charles Schwab Investment
Management, Inc. serves nearly 2 million shareholders with total assets under
management in excess of $39 billion. SchwabFunds(R) has grown into a mutual fund
complex offering retail investors 26 funds covering a broad range of financial
markets and investing approaches.
TIME-TESTED INVESTING STRATEGIES THAT OFFER YOU AN EXPANDING RANGE OF
OPPORTUNITIES.
Over the past 12 months, we've introduced eight new funds, each built on
specific, time-tested strategies. The three Schwab Asset Director(R) Funds help
you diversify your portfolio through asset allocation, the Schwab S&P 500 Fund
seeks to track U.S. stock market performance through indexing, the Schwab
Analytics Fund(TM) uses advanced quantitative methods to identify attractive
investment opportunities, and the three Schwab OneSource Portfolios help you
diversify your portfolio across asset classes and fund management styles through
their fund-of-funds approach.* Along with our other offerings, these new funds
give you powerful tools you can use to help construct a custom investment
portfolio that matches your individual goals. And, of course, they also allow
you to tap into the combined investing expertise of our highly experienced team
of professional portfolio managers.
ENHANCING SHAREHOLDER COMMUNICATIONS.
Our commitment to shareholders goes beyond simply offering you new investment
opportunities. We also want to help you become a more-informed mutual fund
investor by providing the in-depth information you need to help manage your
portfolio more effectively. Toward that end, we've changed the format of this
report to make it more informative.
If you'd like more information on any of the funds in the SchwabFunds Family,
call 1-800-2 NO-LOAD (1-800-266-5623). Our representatives will be happy to
provide you with a free prospectus, which contains more complete information on
fund risks, charges and expenses. Please read it carefully before investing.
Thank you for placing your trust in us. We'll continue working hard to offer you
an even broader range of strategic investment opportunities.
/s/ Charles R. Schwab
Charles R. Schwab
*The Schwab OneSource Portfolios-Growth Allocation and Schwab OneSource
Portfolios-Balanced Allocation Funds are in subscription until November 15,
1996, unless the subscription period is extended, at an introductory share price
of $10. After that date the share price will fluctuate.
Cover: The Schwab Building, San Francisco, California
<PAGE> 3
-------------------------------------
KEEP YOUR
MONEY WORKING
HARDER!
Use this envelope to easily add to
your Schwab 1000 Fund(R).
-------------------------------------
- ---------------------
CHARLES SCHWAB
- ---------------------
- ---------------------
Attn: Dept. AIP 333-4 --------------
- --------------------- NO POSTAGE
NECESSARY IF
MAILED IN THE
UNITED STATES
--------------
- ----------------------------------------------------------------------
BUSINESS REPLY MAIL
FIRST-CLASS MAIL PERMIT NO. 18125 SAN FRANCISCO, CA
- ----------------------------------------------------------------------
POSTAGE WILL BE PAID BY ADDRESSEE
CHARLES SCHWAB & CO INC.
P O BOX 7778
SAN FRANCISCO CA 94120-9419
[BARCODE]
<PAGE> 4
WE'VE MADE IT EASIER FOR YOU! TAKE ADVANTAGE OF THIS OPPORTUNITY TO ADD TO YOUR
SCHWAB 1000 FUND(R).
As a Schwab 1000 Fund shareholder, you can seek U.S. stock market returns by
effectively investing in a diversified equity portfolio of America's 1,000
largest publicly traded U.S. corporations, based on market capitalization! Now
you can add to your fund by using this convenient Schwab investment coupon.
It's a simple, easy way to increase your investment. You can also have money
transferred to your Schwab 1000 Fund directly from your bank account or payroll
check using Schwab's free Automatic Investment Plan (AIP). If you'd like more
information on AIP, just check the appropriate box on the coupon. We'll send
you everything you need to get started.
DON'T DELAY. USE THIS CONVENIENT INVESTMENT ENVELOPE AND SEND YOUR CHECK TODAY!
The Schwab 1000 Fund does not include privately held companies, investment
companies and companies incorporated outside the United States. The Automatic
Investment Plan does not ensure profit or protect against loss in declining
markets.
- --------------------------------------------------------------------------------
PLEASE DETACH HERE
SCHWAB 1000 FUND(R)
INVESTMENT COUPON
- --------------------
Please enclose your check and this ___ ___ ___ ___ - ___ ___ ___ ___
completed investment coupon in the SCHWAB ACCOUNT NUMBER
attached postage-paid envelope.
- ------------------------------------- / / Check here if you would like more
NAME investment coupons for future use.
$
- ------------------------------------- / / Check here if you would like more
AMOUNT OF INVESTMENT* information on Schwab's Automatic
Investment Plan (AIP).
- -------------------------------------
SIGNATURE
*THIS ENVELOPE MAY NOT BE USED FOR
INITIAL INVESTMENTS. SUBSEQUENT
INVESTMENT MINIMUM IS $100.
(C)1996 Charles Schwab & Co., Inc.
All rights reserved. Member SIPC/NYSE.
Printed on recycled paper. TF4268(10/96)
CRS 10552 (Lift here for more information.)
Charles Schwab
JUST FOLLOW THESE EASY STEPS TO INVEST IN YOUR SCHWAB 1000 FUND(R):
1. Fill out the Schwab investment coupon completely, including your name,
account number and the amount of your check. Please use one coupon for
each account.
2. Make your check payable to CHARLES SCHWAB & CO., INC., and enclose your
check with the completed coupon in this postage-paid envelope.
3. Then just drop your Schwab investment envelope in the mail today -- and
start putting your money to work! If you have any questions, don't hesitate
to call your local Schwab office or 1-800-2 NO-LOAD.
THIS ENVELOPE MUST BE PRECEDED OR ACCOMPANIED BY A CURRENT SCHWAB 1000 FUND
PROSPECTUS. THE PRINCIPAL VALUE AND INVESTMENT RETURNS WILL FLUCTUATE SO THAT AN
INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
<PAGE> 5
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<S> <C>
GROWTH IN NET ASSETS ............................................ 2
FUND PERFORMANCE ................................................ 3
TAX-SMART INVESTMENT STRATEGY ................................... 4
FUND INVESTMENTS ................................................ 5
QUESTIONS TO THE PORTFOLIO MANAGEMENT TEAM
AND MARKET OVERVIEW ............................................. 6
FINANCIAL STATEMENTS AND NOTES .................................. 15
- --------------------------------------------------------------------------------
</TABLE>
We are pleased to report on the performance of the Schwab 1000 Fund(R) ("the
Fund") for the fiscal year ended August 31, 1996. During the year, the Fund
achieved its primary objective of tracking the price and dividend performance of
the Schwab 1000 Index(R) ("the Index"). It also succeeded in maintaining the tax
efficiencies and low costs designed to help maximize long-term performance
results as explained in this report.
1
<PAGE> 6
GROWTH IN NET ASSETS
<TABLE>
<CAPTION>
Date Assets
<S> <C>
Apr-91* 53,336,99700
May-91 72,262,90500
Jun-91 81,564,21600
Jul-91 95,315,14400
Aug-91 107,967,48500
Sep-91 124,612,18200
Oct-91 152,872,18400
Nov-91 161,113,58900
Dec-91 192,205,73100
Jan-92 198,352,03100
Feb-92 213,081,60000
Mar-92 223,850,55200
Apr-92 237,730,00500
May-92 248,825,19100
Jun-92 257,530,50900
Jul-92 283,989,60400
Aug-92 288,559,04800
Sep-92 300,430,71100
Oct-92 317,378,17700
Nov-92 344,325,46900
Dec-92 370,979,65900
Jan-93 394,118,81100
Feb-93 417,254,54100
Mar-93 450,550,81600
Apr-93 457,844,75400
May-93 479,573,11500
Jun-93 490,991,38300
Jul-93 496,879,48000
Aug-93 515,272,23900
Sep-93 514,077,42000
Oct-93 524,003,71700
Nov-93 520,583,32300
Dec-93 530,585,05500
Jan-94 542,919,94500
Feb-94 530,175,79400
Mar-94 507,256,37500
Apr-94 515,477,91100
May-94 526,887,73800
Jun-94 522,927,58500
Jul-94 533,383,39000
Aug-94 554,058,69600
Sep-94 544,599,71600
Oct-94 555,890,08500
Nov-94 542,581,67800
Dec-94 553,985,01800
Jan-95 563,981,98300
Feb-95 595,547,95700
Mar-95 625,454,19700
Apr-95 649,296,56800
May-95 691,330,32000
Jun-95 725,864,76200
Jul-95 777,822,77700
Aug-95 826,713,84300
Sep-95 899,016,18900
Oct-95 934,458,01200
Nov-95 1,014,562,00000
Dec-95 1,063,437,73800
Jan-96 1,167,308,63100
Feb-96 1,268,965,35600
Mar-96 1,357,281,16500
Apr-96 1,438,898,24100
May-96 1,512,894,62900
Jun-96 1,543,360,83900
Jul-96 1,490,340,38300
Aug-96 1,560,051,27500
</TABLE>
* Commencement of Operations
2
<PAGE> 7
FUND PERFORMANCE
Total Return Table
The table below compares total returns for various periods, ending August 31,
1996, for the Schwab 1000 Fund(R), Schwab 1000 Index(R) and the Standard and
Poor's 500(R) Index (S&P 500).
<TABLE>
<CAPTION>
=============================================================================================================
5-Year Cumulative Average Annual
Average Since Fund Since Fund
6-Months 1-Year Annual Inception (4/2/91) Inception (4/2/91)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Schwab 1000 Fund 2.49% 17.27% 13.38% 98.61% 13.49%
- -------------------------------------------------------------------------------------------------------------
Schwab 1000 Index 2.72% 17.87% 13.93% 103.27% 13.86%
- -------------------------------------------------------------------------------------------------------------
S&P 500 2.94% 18.69% 13.57% 99.64% --
- -------------------------------------------------------------------------------------------------------------
</TABLE>
As of June 30, 1996, the one-year total return and five-year average annual
total return for the Schwab 1000 Fund were 25.37% and 15.56%, respectively. The
average annual total return since inception was 14.43%.
- ------------------------------------------------------------------------------
Total return assumes reinvestment of all dividends and capital gain
distributions, if any. Past performance is no guarantee of future results.
Principal value and investment returns will fluctuate, so that an investor's
shares, when redeemed, may be worth more or less than their original cost. The
Investment Manager and Schwab waived a portion of their fees during the fiscal
year and have guaranteed that maximum total operating expenses will not exceed
0.49% through at least 12/31/96. Without fee waivers and guarantees the Fund's
total returns for the six-month, one-year, five-year average annual, cumulative
since inception, and average annual since inception, for the periods ended
8/31/96, would have been 2.49%, 17.19%, 13.19%, 96.97%, and 13.32%,
respectively. For the periods ended 6/30/96, the Fund's one-year, five-year
average annual and average annual since inception total returns, without fee
waivers and guarantees, would have been 25.29%, 15.37%, and 14.25%,
respectively. Indices are unmanaged, and unlike the Fund, do not reflect
advisory and other fees associated with an investment in the Fund. Investors
cannot invest in an index directly.
3
<PAGE> 8
TAX-SMART INVESTMENT STRATEGY
The Schwab 1000 Fund(R) seeks to maximize its after-tax performance for
investors by keeping capital gain distributions to a minimum. This strategy is
designed to help you keep more of what your money earns. The following chart
illustrates the effects of this strategy.
<TABLE>
<CAPTION>
============================================================================
FIVE-YEAR AVERAGE ANNUAL TOTAL RETURN AS OF AUGUST 31, 1996
Before Tax After-Tax % Lost to Taxes
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Schwab 1000 Fund 13.38% 12.57% 0.81%
- ----------------------------------------------------------------------------
Average Growth &
Income Funds 11.52% 9.39% 2.13%
- ----------------------------------------------------------------------------
</TABLE>
Source for average growth & income funds is Morningstar, Inc. for 181 growth &
income funds with 5-year track records as of 8/31/96. After-tax returns assume
the maximum Federal tax rate of 39.6% on dividends and 28% on capital gain
distributions. Tax rates vary and may be higher or lower than those shown. Total
return assumes reinvestment of all dividends and capital gain distributions, if
any. Past performance is no guarantee of future results. Principal value and
investment returns will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost. The Investment Manager and
Schwab waived a portion of their fees during the fiscal year and have guaranteed
that maximum total operating expenses will not exceed 0.49% through at least
12/31/96. Without fee waivers and guarantees, the Fund's total return would have
been lower.
FUND HOLDINGS
The Fund is a diversified and broad representation of the U.S. stock market,
typically consisting of the 1,000 largest publicly traded U.S. companies
(excluding investment companies). The Fund includes a diversified group of
stocks that represent approximately 85% of the total value of the U.S. stock
market. 1 At right is a list of the Fund's ten largest holdings shown as a
percentage of Fund investments and a pie chart, as a percentage of equity
investments, showing the Fund's diversification across a broad range of economic
sectors. Both are as of August 31, 1996 and are not indicative of the Fund's
future holdings. A complete listing of the Fund's portfolio holdings, as of
August 31, 1996, can be found in the Statement of Net Assets section of this
report.
1 Source: Wilshire Associates, as of 9/30/96. The U.S. stock market is
represented by the Wilshire 5000 Index.
4
<PAGE> 9
FUND'S TOP TEN HOLDINGS AS A
PERCENTAGE OF FUND INVESTMENTS
<TABLE>
<CAPTION>
<S> <C>
General Electric 2.35%
Coca-Cola Co. 2.11%
Exxon 1.72%
AT&T Corp. 1.45%
Merck & Co. 1.38%
Phillip Morris Companies, Inc. 1.28%
Microsoft Corp. 1.24%
Johnson & Johnson 1.12%
Intel Corp. 1.11%
IBM Corp. 1.08%
</TABLE>
THE SCHWAB 1000 FUND'S(R)
DIVERSIFIED STOCK PORTFOLIO COVERS
A BROAD RANGE OF SECTORS
Consumer Non-Durables 31.7%
Finance 16.3%
Technology 13.6%
Utilities 11.7%
Materials & Services 9.6%
Energy 6.8%
Capital Goods 5.6%
Consumer Durables 2.9%
Transportation 1.8%
Source: Wilshire Associates
5
<PAGE> 10
QUESTIONS TO THE PORTFOLIO MANAGEMENT TEAM OF
CHARLES SCHWAB INVESTMENT MANAGEMENT, INC.
STEPHEN B. WARD - Senior Vice President and Chief Investment Officer has overall
responsibility for the management of the Fund's portfolio. Steve joined CSIM as
Vice President and Portfolio Manager in April 1991, and was promoted to his
current position in August 1993. Prior to joining CSIM, Steve was Vice President
and Portfolio Manager at Federated Investors. He holds an MBA from the Wharton
School, a B.A. in economics from Virginia Tech, and has been a Chartered
Financial Analyst since 1985.
GERI HOM - Portfolio Manager, has primary responsibility for the day-to-day
management of the Fund's portfolio. Geri joined CSIM in March 1995 as Portfolio
Manager and currently manages approximately $3 billion in assets. Prior to
joining CSIM, Geri was a Principal for Wells Fargo Nikko Investment Advisors and
Vice President and Manager of the Domestic Equity Portfolio Management Group for
Wells Fargo Nikko. She holds a B.A. in business education from San Francisco
State University.
MARKET OVERVIEW
ECONOMIC HIGHLIGHTS
At the beginning of the fiscal year there was concern about the likelihood of an
economic recession. However, as time progressed the economic climate changed. By
August 31, 1996 sentiment was focused on the apparent strength of the economy
and its potential impact on future inflation. During the first half of 1996,
many economic observers were surprised by the increase in the real Gross
Domestic Product (GDP) growth rate and the strength of the labor market. The
real GDP growth rate was 2.0% for the first quarter of 1996 and 4.7% for the
second quarter. The average monthly increase in payroll employment jumped from
185,000 in 1995 to 234,000 during the first eight months of 1996, leading to the
lowest unemployment rates in this decade.
The economy continues to exhibit signs of strong economic growth as evidenced by
the growth in jobs, retail sales, auto sales and construction
6
<PAGE> 11
spending. Inflation has remained relatively low, as evidenced by the 3.0%
increase in the Consumer Price Index (CPI) for the 12 months ended August 31,
1996. However, there remains a concern that the economy is performing at or near
its employment and manufacturing capacity. As a result, the Federal Reserve (the
Fed) has indicated it will maintain a posture of "heightened surveillance" and
remain diligent in its effort to prevent increases in inflation.
TOTAL RETURN PERFORMANCE
GROWTH OF A DOLLAR INVESTED
<TABLE>
<CAPTION>
Schwab Schwab Lehman MF
Small Cap International General US
S&P 500 Index Index Govt. Index
<S> <C> <C> <C> <C>
Aug-95 $1.000 $1.000 $1.000 $1.000
Sep-95 1.042 1.020 1.024 1.010
Oct-95 1.038 0.971 1.007 1.025
Nov-95 1.084 1.017 1.035 1.041
Dec-95 1.105 1.042 1.075 1.056
Jan-96 1.142 1.039 1.078 1.062
Feb-96 1.153 1.081 1.080 1.040
Mar-96 1.164 1.100 1.101 1.032
Apr-96 1.181 1.158 1.127 1.025
May-96 1.212 1.197 1.113 1.024
Jun-96 1.216 1.159 1.121 1.037
Jul-96 1.162 1.066 1.092 1.039
Aug-96 1.187 1.133 1.101 1.037
</TABLE>
TOTAL RETURN ASSUMES REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. The indices
are representative returns of specific market sectors from 9/1/95 through
8/31/96 and do not reflect a fund's performance. Indices are unmanaged, and
unlike a fund, do not reflect advisory fees and other expenses associated with
an investment in a fund. Investors cannot invest in an index directly.
DOMESTIC EQUITY MARKET HIGHLIGHTS
As shown in the graph above, large cap stocks, as represented by the S&P 500,
outperformed small-cap stocks, international stocks and bonds, achieving a total
return of 18.7% for the fiscal year. The S&P 500
7
<PAGE> 12
reached its fiscal year high late in May, marking the end of (or at least a
pause in) a remarkable 52.4% total return since the beginning of 1995.
Many segments of the equity market reached record highs and demonstrated
significant volatility during the fiscal year. The Dow Jones Industrial Average
and the S&P 500 reached record highs of 5,778.0 on May 22 and 678.5 on May 24,
respectively. The NASDAQ Index reached a record high of 1249.1 on June 5, then
proceeded to drop 8.6% by the end of the fiscal year. Three of the eight
all-time largest daily point losses for the Dow occurred during the fiscal year
- -- two of which were a result of stronger than expected payroll growth and the
attendant fears that the Fed might raise short-term interest rates.
Using most traditional measures, such as price-to-book value and dividend yield,
many major market indices remain valued near their historic highs. The primary
exception is the price-to-earnings ratio which, at 19 times earnings (for the
S&P 500), is well above its historical average, but below its 1991 and 1987
highs of 26 and 22, respectively.
INTERNATIONAL EQUITY MARKET HIGHLIGHTS
International equity returns were more modest and were heavily influenced by the
strengthening dollar. In local currency terms, the total return of the Schwab
International Index(R) 2 for the 12 months ended August 31, 1996 was 13.43%.
However, because the U.S. dollar increased in value against most other
currencies, the total return for U.S. dollar-denominated investors was 10.14%.
2 The Schwab International Index is representative of the international equity
market. This Index is comprised of the stocks of the 350 largest non-U.S.
companies located in countries with developed securities markets and excludes
investment companies.
8
<PAGE> 13
30-YEAR AND 5-YEAR TREASURY BOND YIELDS
<TABLE>
<CAPTION>
Thirty Year Five Year
Treasury Bond Treasury Bond
Yield Yield
- ---------------------------------------------------
<S> <C> <C>
9/1/95 6.62% 6.02%
9/8/95 6.59 6.03
9/15/95 6.48 5.93
9/22/95 6.59 6.06
9/29/95 6.50 6.02
10/6/95 6.42 5.88
10/13/95 6.30 5.80
10/20/95 6.36 5.90
10/27/95 6.36 5.83
11/3/95 6.28 5.70
11/10/95 6.34 5.76
11/17/95 6.23 5.65
11/24/95 6.25 5.69
12/1/95 6.09 5.49
12/8/95 6.05 5.55
12/15/95 6.10 5.57
12/22/95 6.06 5.50
12/29/95 5.95 5.38
1/5/96 6.05 5.41
1/12/96 6.15 5.43
1/19/96 5.97 5.27
1/26/96 6.05 5.33
2/2/96 6.16 5.26
2/9/96 6.10 5.23
2/16/96 6.24 5.30
2/23/96 6.41 5.51
3/1/96 6.37 5.58
3/8/96 6.71 6.06
3/15/96 6.74 6.18
3/22/96 6.66 6.06
3/29/96 6.67 6.09
4/5/96 6.82 6.38
4/12/96 6.80 6.29
4/19/96 6.79 6.32
4/26/96 6.79 6.28
5/3/96 7.12 6.60
5/10/96 6.93 6.47
5/17/96 6.83 6.41
5/24/96 6.83 6.41
5/31/96 6.99 6.63
6/7/96 7.03 6.70
6/14/96 7.09 6.70
6/21/96 7.10 6.72
6/28/96 6.87 6.46
7/5/96 7.19 6.82
7/12/96 7.03 6.65
7/19/96 6.97 6.57
7/26/96 7.01 6.63
8/2/96 6.74 6.27
8/9/96 6.69 6.22
8/16/96 6.77 6.30
8/23/96 6.96 6.51
8/30/96 7.12 6.72
</TABLE>
DOMESTIC BOND MARKET HIGHLIGHTS
As shown in the chart above, during the first half of the fiscal year, both
intermediate and long-term Treasury bond yields declined, causing a
corresponding increase in the value of bonds. This decline in rates was a result
of concerns over a potential recession, an anticipated decline in demand for
borrowing and reduced inflationary expectations. The domestic bond market
experienced a dramatic reversal in sentiment during February, which marked the
beginning of a sharp increase in Treasury bond yields and a corresponding
decrease in the value of bonds. The increase in rates was a result of strong
economic data and concerns that the economy may be growing too fast, which could
result in higher inflation levels in the future.
9
<PAGE> 14
Q. HOW DID THE PERFORMANCE OF THE SCHWAB 1000 INDEX(R) COMPARE TO THE S&P 500
DURING THE FISCAL YEAR?
A. The total return performance of the Schwab 1000 Index continues to exceed the
S&P 500 on a Fund inception-to-date basis, however, the S&P 500 marginally
outperformed the Schwab 1000 Index during the fiscal year. Total return for the
S&P 500 was 18.69% versus 17.87% for the Schwab 1000 Index during the fiscal
year. The reason for this differential is that large-cap stocks outperformed
mid-cap stocks, which comprise a portion of the Schwab 1000 Index.
Since the two indices are constructed differently, performance variance between
the two indices is to be expected. The S&P 500 includes 500 large capitalization
stocks as determined by the Standard & Poor's Index Committee. Stocks are chosen
for the S&P 500 based on market size, liquidity and industry group
representation. The Schwab 1000 Index is much broader, including the common
stocks of the 1,000 largest operating U.S. corporations (excluding investment
companies) based on market capitalization. It's important to note that investors
cannot invest in an index directly.
Q. WHAT ACCOUNTS FOR THE DIFFERENCE BETWEEN THE PERFORMANCE OF THE SCHWAB 1000
FUND(R) AND THE SCHWAB 1000 INDEX?
A. Unlike the Fund, the Index does not incur management and other Fund costs
which reduce returns to shareholders. Conversely, the Fund, unlike the Index,
holds a small portion of its assets in cash to meet shareholder redemptions and
pay Fund expenses. The cash portion earns interest at money market rates, which
may be more or less than the returns of the Index during a given period. Also,
the weighting of any particular security in the Fund can be greater or less than
in the Index.
Another factor accounting for the difference in performance is the Fund's goal
of minimizing capital gain distributions. In order to avoid excessive
realization of capital gains, the Fund may continue to selectively hold certain
stocks that are no longer in the Index. Depending on the performance of these
non-Index stocks, this practice may have a positive
10
<PAGE> 15
COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 INVESTMENT
IN THE SCHWAB 1000 FUND(R), THE SCHWAB 1000 INDEX(R),
AND THE S&P 500(R) INDEX
---------------------------------------------
SCHWAB 1000 FUND AVERAGE ANNUAL TOTAL RETURNS
THROUGH AUGUST 31, 1996
---------------------------------------------
ONE YEAR FIVE YEAR SINCE INCEPTION
17.27% 13.38% 13.49%
---------------------------------------------
<TABLE>
<CAPTION>
$1000 FUND $1000 INDEX S&P 500 INDEX
DATE* $ Growth $ Growth
<S> <C> <C> <C>
4/2/91 $10,000 $10,000 $10,000
4/30/91 9,910 9,898 9,908
5/31/91 10,320 10,311 10,335
6/30/91 9,850 9,840 9,861
7/31/91 10,320 10,310 10,321
8/31/91 10,600 10,591 10,566
9/30/91 10,460 10,455 10,389
10/31/91 10,630 10,625 10,528
11/30/91 10,240 10,227 10,104
12/31/91 11,425 11,412 11,260
1/31/92 11,283 11,272 11,050
2/29/92 11,425 11,415 11,193
3/31/92 11,171 11,163 10,975
4/30/92 11,404 11,392 11,298
5/31/92 11,404 11,457 11,353
6/30/92 11,465 11,257 11,184
7/31/92 11,726 11,728 11,641
8/31/92 11,480 11,486 11,403
9/30/92 11,623 11,646 11,537
10/31/92 11,746 11,763 11,577
11/30/92 12,208 12,233 11,971
12/31/92 12,398 12,428 12,119
1/31/93 12,502 12,539 12,220
2/28/93 12,595 12,632 12,387
3/31/93 12,896 12,948 12,648
4/30/93 12,533 12,583 12,342
5/31/93 12,896 12,957 12,673
6/30/93 12,958 13,024 12,710
7/31/93 12,905 12,989 12,659
8/31/93 13,397 13,492 13,139
9/30/93 13,355 13,454 13,038
10/31/93 13,544 13,654 13,308
11/30/93 13,355 13,462 13,181
12/31/93 13,592 13,700 13,341
1/31/94 14,005 14,136 13,794
2/28/94 13,645 13,781 13,420
3/31/94 13,042 13,169 12,837
4/30/94 13,190 13,326 13,001
5/31/94 13,349 13,488 13,213
6/30/94 12,988 13,127 12,889
7/31/94 13,405 13,558 13,312
8/31/94 13,971 14,147 13,856
9/30/94 13,651 13,825 13,518
10/31/94 13,918 14,095 13,821
11/30/94 13,416 13,590 13,318
12/31/94 13,577 13,767 13,514
1/31/95 13,923 14,121 13,864
2/28/95 14,474 14,700 14,403
3/31/95 14,852 15,094 14,827
4/30/95 15,219 15,476 15,264
5/31/95 15,770 16,048 15,873
6/30/95 16,191 16,490 16,241
7/31/95 16,807 17,111 16,778
8/31/95 16,936 17,245 16,820
9/30/95 17,606 17,949 17,530
10/31/95 17,520 17,859 17,467
11/30/95 18,276 18,646 18,232
12/31/95 18,547 18,924 18,584
1/31/96 19,095 19,499 19,216
2/29/96 19,379 19,789 19,395
3/31/96 19,554 19,980 19,580
4/30/96 19,883 20,321 19,868
5/31/96 20,354 20,812 20,379
6/30/96 20,299 20,779 20,456
7/31/96 19,335 19,794 19,552
8/31/96 19,861 20,327 19,964
</TABLE>
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. PRINCIPAL VALUE AND
INVESTMENT RETURNS WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED,
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
The performance graph compares a hypothetical 10,000 investment in the Schwab
1000 Fund since inception with hypothetical investments in the Schwab 1000 Index
and the S&P 500. Total return assumes reinvestment of all dividends and capital
gain distributions, if any. Indices are unmanaged and investors cannot invest in
an index directly, therefore indices, unlike the Funds, do not reflect advisory
fees and other expenses associated with an investment in the Fund. The
Investment Manager and Schwab waived a portion of their fees during the
reporting period, and have guaranteed that maximum total operating expenses will
not exceed 0.49% through at least 12/31/96. Without fee waivers and guarantees,
the Fund's total return for each period would have been lower.
11
<PAGE> 16
or negative impact on the Fund. Lastly, unlike the Index, the Fund incurs
trading costs when it buys or sells stocks.
Taken together, these factors cause the difference in the returns of the Fund
compared to the Index, a difference referred to as the Fund's "tracking error."
The tracking error for the Fund during the fiscal year was 0.60%, and its
average annual tracking error since the Fund's inception, April 2, 1991, has
been 0.37%. Given the Fund's current operating expense ratio of 0.49% and the
components of tracking error (as discussed above), we are very pleased with this
level of tracking error.
Q. HOW DOES THE SCHWAB 1000 FUND(R) FIT INTO AN ASSET ALLOCATION PLAN?
A. The Schwab 1000 Fund can be used to fulfill all or a portion of the U.S.
stock component of an asset allocation plan. Since the aggregate value of the
stocks comprising the Index represent approximately 85% of the total market
value of the U.S. stock market, the Fund is a broadly diversified representation
of domestic stock performance.
For asset allocation plans which include separate target allocations for U.S.
large-cap and small-cap equities, the Schwab 1000 Fund can be used to meet all
or a portion of the large-cap equity allocation. Use of funds which focus on
small-cap stocks, such as the Schwab Small-Cap Index Fund(R), is more
appropriate to meet the small-cap equity component of an asset allocation plan.
Q. HOW DO YOU DETERMINE WHICH STOCKS ARE INCLUDED IN THE SCHWAB 1000 INDEX(R)?
A. The Schwab 1000 Index is a theoretical group of stocks representing the 1,000
largest U.S. corporations (excluding investment companies), ranked by market
capitalization. To be included in the Index, a company must satisfy all of the
following criteria:
12
<PAGE> 17
- - it must be an "operating company" (i.e., not an investment company)
incorporated in the United States, its territories or possessions;
- - a liquid market for its common shares must exist on the New York Stock
Exchange, the American Stock Exchange or the NASDAQ/NMS; and
- - its market value must place it among the top 1,000 such companies as
measured by market capitalization.
The Index is "rebalanced" twice a year (on June 30 and December 31), at which
time some stocks are dropped and others are added to the Index based on the
above criteria. A particular stock's weighting in the Index is based on its
total market value relative to the total market value of the Index. As of August
31, 1996, the aggregate market capitalization of Index stocks was approximately
$5.8 trillion.
Q. WHAT IS INDEX INVESTING, AND WHAT MAKES IT AN ATTRACTIVE INVESTMENT STRATEGY?
A. Although index investing has broad appeal among institutional investors, it
is actually a fairly simple concept. Like the Schwab 1000 Index(R), all indices
represent some pre-defined group of securities (frequently, but not always,
common stocks). There are many different types of stock indices, including large
company, small company, industry specific, international, regional and
individual country. An index fund's objective is to track the performance of an
index by either investing in all or a representative sample of the securities in
the index. Index investing is frequently referred to as a "passive" strategy. As
contrasted with "active" strategies, a passive strategy does not attempt to
"make bets" by emphasizing particular industry sectors or individual securities
which the fund's portfolio manager believes will outperform the market.
The primary advantages of index investing include the opportunity to achieve a
particular market return, the ability to purchase a diversified portfolio of
securities and reduce costs to shareholders in the form of lower management fees
and operating expenses. Compared to actively
13
<PAGE> 18
managed funds, passively managed funds generally remain fully invested and,
thus, have lower portfolio turnover and lower transaction costs. Over time,
these strategies may help to enhance shareholders' after-tax returns. For
example, the five-year average annual total return for the Schwab 1000 Fund(R)
exceeds 77.3% of all actively managed growth & income funds on a pre-tax basis,
and 88.4% on an after-tax basis.3
In contrast, actively managed funds may periodically maintain varying levels of
cash in an effort to enhance returns by "timing" market movements. For example,
as of July 31, 1996 the Investment Company Institute reported that the average
cash equivalent position for all growth & income funds was 5.9%. This is
significantly greater than the Schwab 1000 Fund, which had a cash equivalent
position of 0.3% as of August 31, 1996. Over time, being fully invested with a
low cash position will generally provide the potential for higher returns.
3 Source for average growth & income fund is Morningstar, Inc. for the pre-tax
and after-tax average annual total return for 181 growth & income funds with 5-
year track records as of 8/31/96. After-tax returns assume the maximum Federal
tax rate of 39.6% on dividends and 28% on capital gain distributions, however,
tax rates vary and may be higher or lower. TOTAL RETURN ASSUMES REINVESTMENT OF
ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS, IF ANY. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS. PRINCIPAL VALUE AND INVESTMENT RETURNS WILL
FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST. The Investment Manager and Schwab waived a
portion of their fees during the reporting period and have guaranteed that
maximum total operating expenses will not exceed 0.49% through at least
12/31/96. Without fee waivers and guarantees, the Fund's total return would have
been lower.
14
<PAGE> 19
SCHWAB 1000 FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
August 31, 1996
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
COMMON STOCK--99.6%
AEROSPACE/DEFENSE--2.0%
B.F. Goodrich Co. 12,400 $ 465
Boeing Co. 90,200 8,163
Coltec Industries, Inc.* 18,200 273
General Dynamics Corp. 14,900 955
Litton Industries, Inc.* 10,500 490
Lockheed Martin Corp. 53,292 4,483
McDonnell Douglas Corp. 60,000 3,008
Northrop Grumman Corp. 15,900 1,141
Raytheon Co. 60,400 3,111
Rockwell International Corp. 55,500 2,886
Sundstrand Corp. 14,600 546
Textron, Inc. 22,700 1,938
United Technologies Corp. 33,200 3,743
------
31,202
------
AIR TRANSPORTATION--0.5%
AMR Corp.* 25,100 2,058
America West Airlines, Inc. Class B* 11,000 147
Comair Holdings, Inc. 12,000 290
Continental Airlines, Inc. Class B* 14,400 326
Delta Airlines, Inc. 24,700 1,751
Northwest Airlines Corp. Class A* 24,500 923
Southwest Airlines Co. 36,400 833
UAL Corp.* 21,600 1,037
USAir Group, Inc.* 16,500 295
------
7,660
------
ALCOHOLIC BEVERAGES--0.4%
Anheuser-Busch Companies, Inc. 69,200 5,242
Brown Forman Corp. Class B 15,500 562
------
5,804
------
APPAREL--0.6%
Jones Apparel Group, Inc.* 6,800 377
Liz Claiborne, Inc. 17,500 608
NIKE, Inc. Class B 39,800 4,298
Nautica Enterprises, Inc.* 10,000 266
Nine West Group, Inc.* 7,700 397
Reebok International Ltd. 16,700 601
Russell Corp. 5,900 189
Springs Industries, Inc. 5,000 226
Talbots, Inc. 7,500 257
Unifi, Inc. 16,925 463
V.F. Corp. 18,800 1,105
Warnaco Group, Inc. Class A 13,600 337
------
9,124
------
</TABLE>
15
<PAGE> 20
SCHWAB 1000 FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
August 31, 1996
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
AUTOMOTIVE PRODUCTS--0.2%
Bandag, Inc. 4,000 $ 189
Cooper Tire & Rubber 19,500 380
Danaher Corp. 12,800 531
Goodyear Tire & Rubber 38,900 1,775
Lear Corp.* 14,000 537
------
3,412
------
BANKS--7.8%
AmSouth Bancorp. 11,700 461
Banc One Corp. 116,021 4,452
Bancorp Hawaii, Inc. 10,175 385
Bank of Boston Corp. 42,120 2,222
Bank of New York Co., Inc. 101,000 2,815
BankAmerica Corp. 94,995 7,362
Bankers Trust New York Corp. 21,300 1,656
Barnett Banks, Inc. 23,088 1,515
Boatmens Bancshares, Inc. 38,700 2,063
Central Fidelity Banks, Inc. 12,825 304
Chase Manhattan Corp. (New) 114,330 8,503
Citicorp 131,100 10,914
Comerica, Inc. 29,264 1,427
Commerce Bancshares, Inc. 7,056 257
Compass Bancshares, Inc. 8,850 298
Corestates Financial Corp. 56,592 2,341
Crestar Financial Corp. 12,400 721
Dime Bancorp, Inc. (New)* 24,926 327
Fifth Third Bancorp 26,975 1,436
First American Corp. 5,900 274
First Bank System, Inc. 37,109 2,384
First Chicago NBD Corp. 81,521 3,475
First Commerce Corp. 10,562 380
First Empire State Corp. 2,500 636
First Security Corp. 19,612 533
First Tennessee National Corp. 16,300 559
First Union Corp. 77,793 4,969
First Virginia Banks, Inc. 9,750 405
First of America Bank Corp. 21,900 1,035
Firstar Corp. 19,500 921
Firstmerit Corp. 5,400 163
Fleet Financial Group, Inc. (New) 73,580 3,072
Hibernia Corp. Class A 35,000 385
Huntington Bancshares, Inc. 48,512 1,107
J.P. Morgan & Co., Inc. 51,400 4,504
Keycorp (New) 58,923 2,364
MBNA Corp. 59,700 1,813
Marshall & Ilsley Corp. 19,828 548
Mellon Bank Corp. 40,472 2,241
</TABLE>
16
<PAGE> 21
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Mercantile Bancorp, Inc. 14,450 $ 706
Mercantile Bankshares Corp. 10,450 280
National City Corp. 74,240 2,793
NationsBank Corp. 78,464 6,679
Northern Trust Corp. 16,950 1,116
Norwest Corp. 94,288 3,548
Old Kent Financial Corp. 17,120 688
PNC Bank Corp. 90,430 2,826
Provident Bancorp, Inc.* 6,800 272
Regions Financial Corp. 13,850 635
Republic New York Corp. 16,400 1,084
Signet Banking Corp. 15,300 369
SouthTrust Corp. 25,125 744
Southern National Corp. 28,750 898
Star Banc Corp. 7,100 559
State Street Boston Corp. 20,100 1,088
Summit Bancorp 32,900 1,275
Suntrust Banks, Inc. 57,200 2,195
Synovus Financial Corp. 25,650 612
U.S. Bancorp 47,891 1,838
Union Bank of California 7,400 357
Union Planters Corp. 12,100 398
Valley National Bancorp 11,365 293
Wachovia Corp. (New) 42,520 1,945
Wells Fargo & Co. 26,000 6,468
Wilmington Trust Co. 4,900 160
Zions Bancorp 2,900 251
-------
121,304
-------
BUSINESS MACHINES & SOFTWARE--7.5%
3COM Corp.* 43,400 2,029
Adobe Systems, Inc. 23,800 832
Amdahl Corporation* 32,100 319
America Online, Inc.* 21,100 640
Apple Computer, Inc. 38,700 941
Autodesk, Inc. 12,200 282
BMC Software, Inc.* 12,100 904
Bay Networks, Inc.* 53,923 1,483
Cabletron Systems, Inc.* 24,250 1,479
Ceridian Corp.* 17,480 745
Cirrus Logic, Inc.* 12,200 188
Cisco Systems, Inc.* 172,300 9,078
Compaq Computer Corp.* 70,600 3,998
Computer Assoc. International, Inc. 96,075 5,044
Computer Sciences Corp.* 20,498 1,435
Compuware Corp.* 11,000 476
Dell Computer Corp.* 27,300 1,831
Diebold, Inc. 17,212 884
</TABLE>
17
<PAGE> 22
SCHWAB 1000 FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
August 31, 1996
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Digital Equipment Corp.* 38,400 $ 1,483
EMC Corp.* 55,900 1,076
Electronic Arts, Inc.* 11,400 353
Electronics for Imaging, Inc.* 7,500 471
Gateway 2000, Inc.* 24,000 1,074
Hewlett Packard Co. 267,400 11,699
Honeywell, Inc. 33,800 1,965
Informix Corp.* 40,700 918
International Business Machines 147,700 16,893
Intuit, Inc.* 11,800 435
Iomega Corp.* 39,000 602
Komag, Inc.* 27,200 573
McAfee Associates, Inc.* 8,000 479
Medic Computer Systems, Inc.* 6,500 227
Micron Electronics* 20,000 319
Microsoft Corp.* 158,300 19,402
Network General Corp.* 11,000 188
Novell, Inc.* 104,000 1,086
Oracle Systems Corp.* 170,275 5,992
Parametric Technology Corp.* 36,200 1,643
PeopleSoft, Inc.* 11,400 876
Pitney Bowes, Inc. 39,300 1,896
Policy Management Systems Corp.* 3,000 106
Safeguard Scientifics, Inc.* 7,000 226
Seagate Technology, Inc.* 26,830 1,288
Security Dynamics Technology* 4,000 264
Shiva Corp.* 8,400 424
Silicon Graphics, Inc.* 47,900 1,114
Sterling Software, Inc.* 7,200 489
Storage Technology Corp.* 14,800 561
Sun Microsystems, Inc.* 49,500 2,688
Sybase, Inc.* 15,120 243
Synopsys, Inc.* 9,800 373
Tandem Computers, Inc.* 47,800 502
Unisys Corp.* 69,900 411
Western Digital Corp.* 8,800 309
Xerox Corp. 89,500 4,911
-------
116,147
-------
BUSINESS SERVICES--3.1%
American Management Systems, Inc.* 11,000 279
Apria Healthcare Group, Inc.* 14,000 354
Automatic Data Processing, Inc. 78,200 3,255
Browning Ferris Industries Inc. 55,200 1,408
Cadence Design Systems, Inc.* 19,875 589
Cambridge Technology Partners* 12,000 342
Cintas Corp. 16,100 879
Comdisco, Inc. 22,022 573
</TABLE>
18
<PAGE> 23
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Concord EFS, Inc.* 14,850 $ 379
Corrections Corp. of America* 18,000 581
Credit Acceptance Corp.* 7,000 154
Deluxe Corp. 20,400 780
Dun & Bradstreet Corp. 47,600 2,743
Ecolab, Inc. 14,400 437
Equifax, Inc. 39,000 995
FHP International Corp.* 10,500 380
First Data Corp. 61,551 4,801
Fiserv, Inc.* 8,975 302
FlightSafety International, Inc. 9,800 434
Foundation Health Corp.* 12,200 366
GTECH Holdings Corp.* 15,700 436
Gartner Group Inc. Class A (New)* 24,300 759
H & R Block, Inc. 22,700 568
HBO & Co. 24,600 1,341
Health Care & Retirement Corp.* 10,050 249
Health Management Associates, Inc. Class A* 21,168 482
HealthCare Compare Corp.* 6,000 257
Healthsource, Inc.* 17,000 255
Interpublic Group of Companies, Inc. 19,900 900
Kelly Services, Inc. Class A 5,525 155
Laboratory Corp. of America Holdings, Inc.* 18,648 75
Manpower, Inc. 19,500 695
Medaphis Corp.* 25,200 321
Medpartners/Mullikin, Inc.* 13,000 270
National Service Industries, Inc. 12,200 464
Olsten Corp. 22,275 621
Omnicom Group, Inc. 19,100 867
OrNda Healthcorp* 16,300 420
PHH Corp. 9,000 260
PacifiCare Health Systems, Inc. Class B* 9,300 746
Paychex, Inc. 22,725 1,221
PhyCor Inc.* 12,300 401
Quorum Health Group, Inc.* 13,100 332
R.R. Donnelley & Sons Co. 37,500 1,223
Republic Industries, Inc.* 50,000 1,300
Reynolds & Reynolds Co. Class A 10,200 511
Robert Half International, Inc.* 23,100 762
SUPERVALU, Inc. 15,800 444
Safety-Kleen Corp. 8,600 148
Sanifill Inc. 6,500 301
Service Corp. International 33,700 1,900
Shared Medical Systems Corp. 7,600 414
Steris Corp.* 9,000 276
Stewart Enterprises, Inc. Class A 13,050 445
SunGard Data Systems, Inc.* 8,800 375
Total System Services, Inc. 31,800 719
</TABLE>
19
<PAGE> 24
SCHWAB 1000 FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
August 31, 1996
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
U.S.A. Waste Services, Inc.* 30,500 $ 839
United Waste Systems, Inc.* 9,000 263
Value Health, Inc.* 9,082 144
Vencor Inc.* 15,775 495
Viad Corp. 20,100 286
WMX Technologies, Inc. 132,000 4,175
Wallace Computer Services, Inc. 6,800 184
Wellpoint Health Networks, Inc. Class A* 17,275 536
Wheelabrator Technologies, Inc. 37,300 555
------
48,421
------
CHEMICAL--3.4%
A. Schulman, Inc. 10,000 221
ARCO Chemical Co. 25,600 1,229
Air Products & Chemicals, Inc. 29,100 1,593
Albemarle Corp. 25,400 410
Betz Laboratories, Inc. 4,100 201
Cabot Corp. 17,800 490
Cytec Industries, Inc.* 13,755 478
Dow Chemical Co. 67,300 5,367
E.I. Du Pont de Nemours & Co. 147,500 12,113
Eastman Chemical Co. 23,725 1,326
Ethyl Corp. 31,300 282
Georgia Gulf Corp. 12,600 397
Great Lakes Chemical Corp. 14,500 834
Hercules, Inc. 29,300 1,458
International Speciality Products, Inc.* 15,400 169
Loctite Corp. 9,300 408
Lubrizol Corp. 15,600 443
Lyondell Petrochemical Co. 16,300 371
M.A. Hanna Co. 10,725 233
Minnesota Mining & Manufacturing Co. 113,700 7,817
Monsanto Co. 155,500 4,995
Morton International, Inc. 36,900 1,370
Nalco Chemical Co. 14,800 475
Olin Corp. 5,000 396
PPG Industries, Inc. 47,600 2,350
Praxair Inc. 47,100 1,937
RPM, Inc. 10,875 173
Rohm & Haas Co. 16,300 1,019
Sigma-Aldrich Corp. 17,500 925
Union Carbide Corp. 37,000 1,600
Valspar Corp. 2,800 132
W.R. Grace & Co. 24,900 1,634
Witco Corp. 12,900 390
------
53,236
------
</TABLE>
20
<PAGE> 25
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
CONSTRUCTION--0.4%
Armstrong World Industries, Inc. 8,100 $ 501
Clayton Homes, Inc. 21,077 424
Crane Co. 4,600 184
Fluor Corp. 20,300 1,299
Lafarge Corp. 16,100 306
Martin Marietta Materials, Inc. 21,400 471
Oakwood Homes Corp. 14,000 329
Owens Corning* 11,600 422
Schuller Corp. 49,300 487
Sherwin Williams Co. 27,500 1,203
Stanley Works 19,800 545
USG Corp.* 11,700 333
Vulcan Materials Co. 7,800 451
-----
6,955
-----
CONSUMER-DURABLE--0.4%
Black & Decker Corp. 19,500 770
Leggett & Platt, Inc. 18,300 522
Masco Corp. 40,400 1,177
Maytag Corp. 22,800 459
Newell Co. 37,674 1,173
Shaw Industries, Inc. 30,100 452
Snap-on Tools Corp. 10,100 461
Sunbeam Corporation 21,100 459
Whirlpool Corp. 21,100 1,034
-----
6,507
-----
CONSUMER-NONDURABLE--1.4%
American Greetings Corp. Class A 29,200 756
Apple South, Inc. 12,350 258
Applebee's International, Inc.* 5,000 145
Boston Chicken, Inc.* 15,600 541
Brinker International, Inc.* 20,225 303
Corning, Inc. 63,800 2,377
Cracker Barrel Old Country Store, Inc. 20,900 489
Darden Restaurants, Inc. 38,600 309
Duracell International, Inc. 29,500 1,331
First Brands Corp. 6,400 146
Hasbro, Inc. 23,150 851
Lancaster Colony Corp. 5,300 193
Lone Star Steakhouse & Saloon, Inc.* 7,400 246
Mattel, Inc. 72,220 1,905
McDonald's Corp. 184,600 8,561
Outback Steakhouse, Inc.* 11,250 316
Papa John's International, Inc.* 5,000 227
Premark International, Inc. 17,300 316
Rubbermaid, Inc. 36,000 954
</TABLE>
21
<PAGE> 26
SCHWAB 1000 FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
August 31, 1996
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Starbucks Corp.* 20,500 $ 669
U S Industries Inc. New* 15,000 386
Wendy's International, Inc. 33,500 678
------
21,957
------
CONTAINERS--0.3%
Bemis Co., Inc. 13,400 400
Crown Cork & Seal, Inc. 32,700 1,529
Jefferson Smurfit Corp.* 25,900 311
Owens-Illinois, Inc.* 30,900 475
Sealed Air Corp.* 9,600 364
Sonoco Products Co. 21,310 631
Stone Container Corp. 22,112 307
------
4,017
------
ELECTRONICS--4.1%
ADC Telecommunications, Inc.* 17,700 1,007
AMP, Inc. 61,300 2,345
Adaptec, Inc.* 15,200 759
Advanced Micro Devices, Inc.* 44,900 572
Altera Corp.* 9,200 405
American Power Conversion Corp.* 14,000 193
Amphenol Corp. Class A* 6,500 128
Analog Devices, Inc.* 37,050 894
Applied Materials, Inc.* 49,700 1,205
Arrow Electronics, Inc.* 11,400 520
Ascend Communications, Inc.* 27,300 1,432
Atmel Corp.* 30,200 780
Avnet, Inc. 9,100 425
Cascade Communications Corp.* 25,300 1,722
Checkpoint Systems, Inc.* 8,000 231
Cypress Semiconductor Corp.* 15,600 181
EG&G, Inc. 7,200 135
Electronic Data Systems Corp. 130,000 7,085
FORE Systems, Inc.* 23,400 829
General Instrument Corp.* 37,000 1,013
General Signal Corp. 11,600 465
Glenayre Technologies, Inc.* 14,600 534
Harris Corp. 8,300 510
Imation Corp.* 10,760 254
Input/Output, Inc.* 11,400 403
Intel Corp. 217,300 17,343
KLA Instruments Corp.* 10,400 207
LSI Logic Corp.* 32,100 702
Linear Technology Corp. 18,700 626
Maxim Integrated Products, Inc.* 14,600 450
Mentor Graphics Corp.* 8,000 110
Micron Technology Inc. 49,200 1,119
Molex, Inc. 23,445 774
</TABLE>
22
<PAGE> 27
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Molex, Inc. Class A 12,366 $ 369
Motorola, Inc. 160,800 8,583
National Semiconductor Corp.* 33,300 612
Perkin-Elmer Corp. 10,300 534
Pittway Corp. Class A 6,750 317
QUALCOMM, Inc.* 14,700 637
SCI Systems, Inc.* 9,000 403
Scientific-Atlanta, Inc. 11,700 158
Sensormatic Electronics Corp. 27,150 499
Solectron Corp.* 14,100 527
Symbol Technologies, Inc.* 4,300 191
Tektronix, Inc. 7,600 295
Teradyne, Inc.* 17,900 277
Texas Instruments, Inc. 48,300 2,258
Thermo Instrument Systems, Inc.* 26,737 1,036
Thomas & Betts Corp. 10,400 382
Varian Associates, Inc. 9,300 424
VeriFone, Inc.* 6,500 310
Vicor Corp.* 12,500 309
Vishay Intertechnology, Inc.* 12,810 258
Xilinx, Inc.* 17,400 611
------
64,348
------
ENERGY-DEVELOPMENT--1.3%
Anadarko Petroleum Corp. 19,700 1,039
Apache Corp. 30,100 884
BJ Services Co.* 10,000 376
Baker Hughes, Inc. 41,200 1,246
Burlington Resources, Inc. 33,000 1,407
Chesapeake Energy Corp.* 7,500 403
Cooper Cameron Corp.* 7,500 396
Dresser Industries, Inc. 46,060 1,336
ENSCO International, Inc.* 16,400 480
Enron Oil & Gas Co. 41,100 1,063
Freeport-McMoRan, Inc. 4,250 146
Global Marine, Inc.* 51,500 740
Halliburton Co. 30,100 1,584
Louisiana Land & Exploration Co. 8,700 495
MAPCO Petroleum, Inc. 7,400 399
Mitchell Energy & Development Corp. Class A 8,000 150
NGC Corp. 31,000 469
Nabors Industries, Inc.* 21,100 314
Noble Affiliates, Inc. 12,400 498
Noble Drilling Corp.* 30,000 428
Occidental Petroleum Corp. 84,900 1,974
Parker & Parsley Petroleum Co.* 9,400 233
Reading & Bates Corp. (New)* 18,500 453
Rowan Cos., Inc. 22,000 338
</TABLE>
23
<PAGE> 28
SCHWAB 1000 FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
August 31, 1996
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Sonat Offshore Drilling, Inc. 8,300 $ 453
Tidewater, Inc. 15,000 576
Union Texas Petroleum Holdings, Inc. 21,100 438
United Meridian Corp.* 7,500 298
Valero Energy Corp. 6,600 139
Vastar Resources 29,800 1,039
Weatherford Enterra, Inc.* 9,400 270
------
20,064
------
FOOD-AGRICULTURE--5.6%
Archer-Daniels-Midland Co. 142,443 2,528
CPC International, Inc. 38,000 2,617
Campbell Soup Co. 65,600 4,272
Coca-Cola Co. 658,600 32,930
Coca-Cola Enterprises, Inc. 34,200 1,381
ConAgra, Inc. 61,824 2,604
Dean Foods Co. 6,150 159
Dole Food Company, Inc. 13,100 542
Earthgrains Co. 2,388 81
Flowers Industries, Inc. 15,000 270
General Mills, Inc. 43,600 2,398
H.J. Heinz Co. 105,100 3,311
Hershey Foods Corp. 20,400 1,777
Hormel Foods Corp. 19,100 406
IBP, Inc. 20,400 477
IMC Global, Inc. 24,760 1,065
Interstate Bakeries Corp. (New)* 18,600 563
Kellogg Co. 58,400 3,942
McCormick & Co., Inc. 15,400 318
Nabisco Holdings Corp. Class A 14,000 471
Pepsico, Inc. 414,600 11,920
Pioneer HI Bred International, Inc. 19,400 1,069
Quaker Oats Co. 34,600 1,137
Ralston Purina Co. 26,300 1,644
Richfood Holdings, Inc. 8,500 321
Sara Lee Corp. 130,900 4,123
Sysco Corp. 46,700 1,500
Terra Industries, Inc. 11,100 147
Tyson Foods, Inc. Class A 46,200 1,123
Universal Corp. 9,500 240
Universal Foods Corp. 4,100 117
Whitman Corp. 23,900 535
Wm Wrigley Junior Co. 35,000 1,894
------
87,882
------
</TABLE>
24
<PAGE> 29
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
GOLD--0.2%
Homestake Mining Co. 37,800 $ 624
Newmont Gold Co. 28,600 1,541
Newmont Mining Corp. 26,132 1,382
Santa Fe Pacific Gold Corp. 25,720 334
------
3,881
------
HEALTHCARE--9.6%
ALZA Corp.* 27,600 756
Abbott Laboratories 210,200 9,485
Allergan, Inc. 15,700 610
American Home Products Corp. 170,100 10,078
Amgen, Inc.* 67,700 3,948
Bausch & Lomb Inc. 13,100 434
Baxter International, Inc. 74,600 3,329
Beckman Instruments, Inc. 4,300 159
Becton Dickinson & Co. 35,800 1,463
Bergen Brunswig Corp. Class A 6,483 181
Beverly Enterprises, Inc.* 18,400 189
Biogen, Inc.* 7,400 514
Biomet, Inc.* 25,900 403
Boston Scientific Corp.* 49,271 2,260
Bristol Myers Squibb Co. 131,900 11,574
C.R. Bard, Inc. 13,600 422
Cardinal Health, Inc. 19,662 1,443
Caremark International, Inc. 17,475 435
Centocor, Inc.* 20,600 695
Chiron Corp.* 49,612 967
Columbia/HCA Healthcare Corp. 122,172 6,887
Dentsply International, Inc. 4,100 168
Dura Pharmaceuticals, Inc.* 9,000 313
Eli Lilly & Co. 150,284 8,604
Forest Laboratories, Inc.* 9,300 382
Genentech Inc.* 34,300 1,801
Genesis Health Ventures, Inc.* 8,000 204
Genetics Institute* 6,300 393
Genzyme Corp. General Division* 12,000 289
Guidant Corp. 17,168 871
HealthSouth Rehabilitation Corp.* 41,600 1,347
Hillenbrand Industries, Inc. 15,000 486
Humana Inc.* 46,500 872
IDEXX Laboratories, Inc.* 9,800 383
IVAX Corp. 29,700 479
Interneuron Pharmaceuticals* 10,500 326
Johnson & Johnson 354,200 17,444
Lincare Holdings, Inc.* 7,500 279
Mallinckrodt Group, Inc. 25,600 1,037
Manor Care, Inc. 14,550 500
</TABLE>
25
<PAGE> 30
SCHWAB 1000 FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
August 31, 1996
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
McKesson Corp. (New) 9,700 $ 413
Medtronic, Inc. 62,500 3,250
Merck & Co., Inc. 328,654 21,568
Mylan Laboratories, Inc. 25,550 418
Nellcor Puritan Bennett, Inc.* 15,000 388
Omnicare, Inc. 26,600 652
Pfizer, Inc. 168,000 11,928
Quintiles Transnational Corp.* 6,000 452
R.P. Scherer Corp.* 3,600 173
Rhone-Poulenc Rorer, Inc. 34,000 2,393
Schering Plough Corp. 98,600 5,509
St. Jude Medical, Inc.* 26,450 951
Stryker Corp. 21,600 531
Sybron International Corp.* 9,800 270
Tenet Healthcare Corp.* 55,368 1,163
Thermo Cardiosystems, Inc.* 7,500 256
Thermotrex Corp.* 5,000 188
United Healthcare Corp. 44,900 1,734
United States Surgical Corp. 15,300 558
Vivra, Inc.* 11,000 331
Warner Lambert Co. 71,400 4,248
Watson Pharmaceuticals, Inc.* 9,500 273
-------
150,057
-------
HOUSEHOLD PRODUCTS--2.1%
Alberto Culver Co. Class B Convertible 4,500 186
Avon Products, Inc. 35,200 1,685
Clorox Co. 13,300 1,245
Colgate-Palmolive Co. 41,500 3,372
Dial Corp. (New)* 20,100 231
Gillette Co. 116,500 7,427
International Flavors & Fragrances, Inc. 32,500 1,398
Procter & Gamble Co. 183,900 16,344
Tambrands, Inc. 8,900 378
Thermolase Corp.* 5,700 131
Tupperware Corp.* 17,300 757
-------
33,154
-------
IMAGING & PHOTO--0.5%
C-Cube Microsystems, Inc.* 8,000 306
Eastman Kodak Co. 93,900 6,808
Polaroid Corp. 10,700 453
-------
7,567
-------
INSURANCE--4.1%
AFLAC, Inc. 39,825 1,369
AMBAC, Inc. 9,300 506
Aetna, Inc. 47,565 3,145
Alleghany Corp.* 2,896 585
</TABLE>
26
<PAGE> 31
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Allmerica Property & Casualty Companies, Inc. 10,700 $ 302
Allstate Corp. 119,124 5,316
American General Corp. 54,500 1,989
American International Group, Inc. 127,225 12,086
American National Insurance Co. 5,700 392
American Re Corp. 11,300 713
Aon Corp. 27,350 1,381
Bankers Life Holdings Corp. 6,900 169
CNA Financial Corp.* 18,400 1,849
Chubb Corp. 55,100 2,445
Cigna Corp. 20,700 2,404
Cincinnati Financial Corp. 14,238 778
Conseco, Inc. 8,000 336
Equitable Companies, Inc. 45,100 1,111
Equitable of Iowa Companies 4,700 173
First Colony Corp. 14,450 508
General Re Corp. 20,700 2,999
Hartford Steam Boiler Inspection & Ins., Co. 2,700 120
Health Systems International, Inc.* 10,400 254
ITT Hartford Group, Inc. 28,900 1,524
Jefferson-Pilot Corp. 19,850 1,020
Liberty Financial Cos. 7,000 214
Lincoln National Corp., Inc. 25,100 1,111
MBIA Corp. 13,500 1,100
MGIC Investment Corp. 17,700 1,122
Marsh & McLennan Companies 21,400 1,990
Mercury General Corp. 4,200 190
Ohio Casualty Corp. 5,300 170
Old Republic International Corp. 17,850 397
Oxford Health Plans, Inc.* 21,900 999
Paul Revere Corp. 6,900 196
Progressive Corp. 16,400 892
Protective Life Corp. 13,800 486
Provident Companies, Inc. 12,000 444
Providian Corp. 25,400 1,051
Reliastar Financial Corp. 12,500 552
Safeco Corp. 39,600 1,317
St. Paul Companies, Inc. 22,300 1,154
Sunamerica, Inc. 17,050 1,162
TIG Holdings, Inc. 16,300 469
The PMI Group, Inc.* 10,000 489
Torchmark Corp. 15,650 665
Transamerica Corp. 20,500 1,397
Transatlantic Holdings, Inc. 5,800 402
UNUM Corp. 19,808 1,258
USF&G Corp. 32,700 527
USLIFE Corp. 5,400 158
United Companies Financial Corp. 7,000 266
</TABLE>
27
<PAGE> 32
SCHWAB 1000 FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
August 31, 1996
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
United Insurance Companies, Inc.* 12,000 $ 280
Unitrin, Inc. 7,200 363
Western National Corp. 9,500 179
------
64,474
------
MEDIA--2.5%
A.H. Belo Corp. Class A 18,000 722
BHC Communications, Inc. Class A* 5,700 530
Chris-Craft Industries, Inc.* 4,555 184
Clear Channel Communications* 9,600 791
Comcast Corp. Class A 69,400 1,123
Cox Communications, Inc. Class A* 67,306 1,329
Dow Jones & Co., Inc. 22,000 861
E.W. Scripps Co. Class A 19,675 876
Gannett, Inc. 39,800 2,667
Harte Hanks Communications (New) 9,100 232
Infinity Broadcasting Corp. Class A* 20,587 564
King World Productions, Inc.* 9,000 317
Knight-Ridder, Inc. 28,800 972
Lee Enterprises, Inc. 7,000 144
Lin Television Corp.* 10,550 378
Marvel Entertainment Group, Inc.* 14,500 125
McGraw-Hill, Inc. 24,100 988
Media General, Inc. Class A 7,000 218
Meredith Corp. 8,000 344
New York Times Co. Class A 21,313 666
Pulitzer Publishing Co.* 2,300 125
Reader's Digest Assoc., Inc. Class A 28,800 1,163
Regal Cinemas, Inc.* 5,000 184
Renaissance Communications Corp.* 7,000 247
SBC Communications, Inc. 160,128 7,466
Scholastic Corp.* 2,800 190
Tele Communications, Inc. (New)--TCI Group Series A* 187,346 2,775
Tele-Communications, Inc. (Liberty Media Group)
Class A* 38,086 1,009
Time Warner Inc. 108,480 3,621
Times Mirror Co. (New) Series A 26,400 1,145
Tribune Co. (New) 15,600 1,121
Turner Broadcasting System, Inc. Class A 17,200 428
Turner Broadcasting System, Inc. Class B 54,100 1,339
United Television, Inc. 3,000 284
Viacom Inc. Class A* 18,212 569
Viacom Inc. Class B* 95,074 2,995
Washington Post Co. Class B 2,500 808
------
39,500
------
MISCELLANEOUS FINANCE--4.1%
A.G. Edwards & Sons, Inc. 15,562 436
ADVANTA Corp. Class A 14,600 714
AT&T Capital Corp. 10,900 486
</TABLE>
28
<PAGE> 33
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
American Express Co. 132,900 $ 5,814
Bear Stearns Companies, Inc. 37,275 871
Beneficial Corp. 13,000 733
Berkshire Hathaway, Inc.* 325 10,173
Capital One Financial Corp. 17,000 512
Charter One Financial, Inc. 12,500 476
Countrywide Credit Industries, Inc. 25,985 627
Dean Witter Discover & Co. 43,995 2,200
Federal Home Loan Mortgage Corp. 49,600 4,383
Federal National Mortgage Assoc. 296,800 9,201
Finova Group, Inc. 10,800 594
First USA, Inc. 18,200 965
Franklin Resources, Inc. 22,200 1,321
GATX Corp. 5,000 231
Golden West Financial Corp. 19,200 1,066
Great Western Financial Corp. 30,800 762
Green Tree Financial Corp. 33,000 1,147
Greenpoint Financial Corp. 13,000 463
H.F. Ahmanson & Co. 24,800 626
Household International, Inc. 25,300 2,005
Lehman Brothers Holdings, Inc. 22,880 483
Leucadia National Corp. 13,000 296
Mercury Finance Co. 35,563 413
Merrill Lynch & Co., Inc. 45,300 2,775
Money Store Inc. 15,000 364
Morgan Stanley Group, Inc. 45,100 2,154
Paine Webber Group, Inc. 25,125 518
Salomon Inc. 27,100 1,220
Standard Federal Bank 10,700 448
Student Loan Marketing Assoc. 15,100 1,112
T. Rowe Price Associates, Inc. 13,200 384
TCF Financial Corp. 12,800 478
Travelers Group, Inc. 123,325 5,349
United Asset Management Corp. 18,400 426
Washington Mutual, Inc. 24,125 875
Wesco Financial Corp. 2,100 365
------
63,466
------
MOTOR VEHICLE--2.3%
Chrysler Corp. 204,600 5,959
Cummins Engine, Inc. 10,400 391
Dana Corp. 22,300 669
Eaton Corp. 17,900 991
Echlin Inc. 13,800 421
Fleetwood Enterprises, Inc. 19,200 533
Ford Motor Co. 317,700 10,643
General Motors Corp. 203,000 10,099
General Motors Corp. Class H 28,000 1,565
</TABLE>
29
<PAGE> 34
SCHWAB 1000 FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
August 31, 1996
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Genuine Parts Co. 29,450 $ 1,263
Harley-Davidson, Inc. 20,700 849
PACCAR, Inc. 7,660 349
TRW, Inc. 17,600 1,628
------
35,360
------
NON-FERROUS--0.6%
Alumax, Inc.* 12,500 413
Aluminum Company of America 51,000 3,168
Asarco, Inc. 10,800 279
Cyprus Amax Minerals Co. 18,300 389
Engelhard Corp. 32,687 666
Freeport-McMoRan Copper & Gold, Inc. Class A 29,531 831
Freeport-McMoRan Copper & Gold, Inc. Class B 49,894 1,466
Phelps Dodge Corp. 15,400 932
Reynolds Metals Co. 14,800 792
------
8,936
------
OIL-DOMESTIC--1.2%
Amerada Hess Corp. 24,500 1,246
Ashland, Inc. 18,600 691
Atlantic Richfield Co. 46,100 5,382
FINA, Inc. Class A 8,000 403
Kerr-McGee Corp. 17,000 975
Murphy Oil Corp. 11,370 497
Oryx Energy Co.* 28,200 494
Pennzoil Co. 11,000 587
Phillips Petroleum Co. 72,700 2,944
Pogo Producing Co. 10,000 341
Santa Fe Energy Resources, Inc.* 13,600 160
Smith International, Inc. 10,000 348
Sun, Inc. 15,900 376
Tosco Corp. 9,300 446
USX Corp. (Marathon Group) (New) 81,000 1,691
Ultramar Corp. 11,800 325
Unocal Corp. 71,534 2,450
------
19,356
------
OIL-INTERNATIONAL--4.2%
Amoco Corp. 131,700 9,087
Chevron Corp. 176,800 10,409
Exxon Corp. 329,500 26,813
Mobil Corp. 106,500 12,008
Texaco, Inc. 71,300 6,328
Western Atlas, Inc.* 12,600 765
------
65,410
------
PAPER--1.6%
Alco Standard Corp. 32,300 1,409
Boise Cascade Corp. 10,000 338
</TABLE>
30
<PAGE> 35
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Bowater, Inc. 7,600 $ 274
Champion International Corp. 27,500 1,183
Consolidated Papers, Inc. 9,100 469
Fort Howard Corp.* 20,000 474
Georgia Pacific Corp. 24,300 1,807
International Paper Co. 85,100 3,404
James River Corp. 20,600 536
Kimberly Clark Corp. 75,330 5,904
Louisiana Pacific Corp. 24,000 522
Mead Corp. 11,500 658
Potlatch Corp. 4,300 162
Rayonier, Inc. 13,875 550
St. Joe Corp. 6,800 418
Temple-Inland, Inc. 19,400 958
Thermo Fibertek, Inc.* 9,150 118
Union Camp Corp. 16,300 791
Westvaco Corp. 28,300 810
Weyerhaeuser Co. 52,400 2,338
Willamette Industries, Inc. 17,000 1,056
------
24,179
------
PRODUCER GOODS-MANUFACTURING--5.4%
AGCO Corp. 19,600 463
Airgas, Inc.* 20,600 464
Allied Signal, Inc. 76,900 4,749
American Financial Group, Inc. 24,100 750
American Standard Co.* 20,000 683
Avery Dennison Corp. 11,400 583
Blyth Industries, Inc.* 10,000 460
Boise Cascade Office Products Corp.* 16,400 344
Briggs & Stratton Corp. 4,300 187
Case Corp. 23,900 1,087
Caterpillar, Inc. 54,400 3,747
Cincinnati Milacron, Inc. 5,100 101
Cooper Industries, Inc. 30,300 1,227
Corporate Express, Inc.* 22,900 862
Deere & Co. 71,500 2,842
Dover Corp. 34,600 1,518
Emerson Electric Co. 59,100 4,950
FMC Corp. (New)* 13,600 870
Federal Signal Corp. 10,066 228
Foster Wheeler Corp. 9,800 423
General Electric Co. 440,100 36,583
Harnischfeger Industries Corp. 10,100 381
Harsco Corp. 6,700 408
Hubbell, Inc. Class B 15,938 576
ITT Industries, Inc. 31,600 723
Illinois Tool Works, Inc. 29,600 2,046
</TABLE>
31
<PAGE> 36
SCHWAB 1000 FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
August 31, 1996
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Ingersoll Rand Co. 33,700 $ 1,441
JLG Industries, Inc. 11,000 212
Johnson Controls, Inc. 8,800 620
Mark IV Industries, Inc. 14,672 315
Millipore Corp. 12,400 474
Nordson Corp. 2,700 139
Pall Corp. 24,533 577
Parker Hannifin Corp. 24,250 946
Pentair, Inc. 6,200 169
Presstek, Inc.* 4,000 252
Raychem Corp. 9,700 666
TRINOVA Corp. 7,000 220
Tecumseh Products Co. Class A 3,500 184
Tenneco, Inc. 43,000 2,139
Thermo Electron Corp. 39,137 1,551
Timken Co. 7,800 296
Trinity Industries, Inc. 11,950 387
Tyco Interest Ltd 37,614 1,589
U.S. Filter Corp. (New)* 10,000 261
Varity Corp.* 15,100 759
W.W. Grainger, Inc. 14,000 945
Westinghouse Electric Corp. 109,600 1,795
York International Corp. 8,400 379
------
83,571
------
RAILROAD--1.1%
Alexander & Baldwin, Inc. 6,700 173
Burlington Northern Santa Fe 39,951 3,196
CSX Corp. 54,700 2,769
Conrail Inc. 21,600 1,472
Illinois Central Corp. Class A 15,525 470
Kansas City Southern Industries, Inc. 14,700 595
Norfolk Southern Corp. 34,200 2,851
Southern Pacific Rail Corp.* 39,363 1,122
Union Pacific Corp. 52,900 3,855
Wisconsin Central Transportation Corp.* 12,900 453
------
16,956
------
REAL PROPERTY--0.2%
HFS, Inc.* 34,600 2,072
Host Marriott Corp.* 67,500 928
Rouse Co. 11,500 298
------
3,298
------
RETAIL--5.6%
Albertson's, Inc. 72,100 3,055
American Stores Co. (New) 36,700 1,509
AutoZone, Inc.* 38,500 1,049
Barnes & Noble, Inc.* 5,100 168
</TABLE>
32
<PAGE> 37
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Bed Bath & Beyond, Inc.* 24,800 $ 563
Best Buy Co., Inc.* 11,000 242
CDW Computer Centers, Inc.* 5,000 327
CUC International, Inc.* 63,625 2,187
Circuit City Stores, Inc. 25,700 810
CompUSA, Inc.* 13,000 522
Consolidated Stores Corp.* 19,400 737
Dayton Hudson Corp. 58,500 2,018
Dillard Department Stores, Inc. Class A 32,200 1,095
Dollar General Corp. 22,360 721
Family Dollar Stores, Inc. 14,000 238
Fastenal Co. 9,700 455
Federated Department Stores, Inc.* 51,200 1,773
Food Lion, Inc. Class A 150,450 1,302
Food Lion, Inc. Class B 64,800 527
Fruit of the Loom, Inc. Class A* 18,800 522
Gap Inc. 79,000 2,765
General Nutrition Companies, Inc.* 23,600 350
Giant Food Inc. Class A 13,700 461
Global Directmail Corp.* 10,000 453
Great Atlantic & Pacific Tea Co., Inc. 5,700 152
Hannaford Bros. Co., Inc. 13,300 446
Harcourt General, Inc. 20,200 967
Heilig-Meyers Co. 7,350 130
Home Depot, Inc. 124,866 6,634
Home Shopping Network, Inc.* 23,000 247
J.C. Penney, Inc. 62,300 3,294
Jack Eckerd Corp.* 17,400 426
Just for Feet, Inc.* 5,000 223
K Mart Corp. 135,700 1,357
Kohl's Corp.* 18,200 692
Kroger Co.* 31,200 1,322
Limited, Inc. 66,119 1,223
Lowes Cos, Inc. 42,100 1,521
May Department Stores Co. 75,900 3,453
Melville Corp. 31,300 1,322
Mercantile Stores Co., Inc. 8,300 438
Neiman Marcus Group Inc.* 11,800 350
Nordstrom, Inc. 22,900 893
Office Depot, Inc.* 37,300 592
OfficeMax, Inc.* 26,100 365
Payless Shoesource, Inc.* 9,600 337
Pep Boys--Manny, Moe & Jack 13,700 459
Petsmart Inc.* 27,400 750
Price Costco, Inc.* 47,704 951
Revco D.S., Inc.* 16,000 412
Rite Aid Corp. 17,900 571
Safeway, Inc.* 55,800 2,023
</TABLE>
33
<PAGE> 38
SCHWAB 1000 FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
August 31, 1996
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Sears Roebuck & Co. 111,400 $ 4,902
Southland Corp.* 70,000 221
Spiegel, Inc. Class A (Non Voting) 28,000 233
Staples, Inc.* 38,605 765
Sunglass Hut International Inc.* 14,000 221
TJX Companies, Inc. 26,100 835
Tandy Corp. 18,058 797
Thrifty Payless* 15,000 242
Tiffany & Co. (New) 10,000 349
Toys 'R' Us, Inc.* 70,280 2,073
Viking Office Products, Inc.* 30,200 781
Vons Companies, Inc.* 11,700 518
Wal-Mart Stores, Inc. 605,900 16,056
Walgreen Co. 68,700 2,267
Weis Markets, Inc. 7,900 270
Winn Dixie Stores Inc. 38,300 1,317
Woolworth Corp.* 29,800 633
------
87,879
------
STEEL--0.3%
AK Steel Holding Corp. 7,500 279
Allegheny Teldyne Inc. 58,280 1,180
Bethlehem Steel Corp.* 28,600 293
Inland Steel Industries, Inc. 8,600 148
LTV Corp. 19,200 226
Nucor Corp. 26,100 1,220
USX Corp. (U.S. Steel Group) 19,160 527
Worthington Industries Inc. 16,700 339
------
4,212
------
TELEPHONE--6.7%
360 Communications Co.* 26,944 643
AT&T Corp. 429,817 22,565
Adtran, Inc.* 9,600 608
Airtouch Communications Inc.* 131,000 3,603
Alltel Corp. 46,400 1,311
Ameritech Corp. (New) 144,700 7,470
Andrew Corp.* 17,075 764
Aspect Telecommunications Corp.* 5,000 259
Bell Atlantic Corp. 115,726 6,510
BellSouth Corp. 267,400 9,693
Century Telephone Enterprises, Inc. 13,750 466
Cincinnati Bell Inc. 15,400 735
Comsat Corp. Series 1 17,000 385
DSC Communications Corp.* 35,900 1,066
Frontier Corp. 42,200 1,245
GTE Corp. 259,700 10,226
LCI International Inc.* 17,000 601
MCI Communications Corp. 178,100 4,486
</TABLE>
34
<PAGE> 39
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
MFS Communications Co., Inc.* 60,355 $ 2,554
Nextel Communications, Inc.* 66,000 1,085
Nynex Corp. 118,200 5,097
Octel Communications Corp.* 8,200 239
Pacific Telesis Group 112,700 3,649
Paging Network, Inc.* 30,300 540
Pairgain Technologies, Inc.* 12,000 800
PictureTel Corp. (New)* 4,800 157
Southern New England Telecommunications 13,800 526
Sprint Corp. 118,134 4,799
Telephone & Data Systems, Inc. 12,600 537
Tellabs, Inc.* 21,800 1,382
U S WEST, Inc. (Communications Group) 129,510 3,821
U S WEST, Inc. (Media Group)* 124,700 2,260
U.S. Robotics, Inc. 21,800 1,150
United States Cellular Corp.* 19,500 590
Worldcom, Inc.* 97,234 2,036
-------
103,858
-------
TOBACCO--1.8%
American Brands, Inc. 51,300 2,084
Loew's Corp. 33,500 2,504
Philip Morris Companies, Inc. 222,300 19,951
RJR Nabisco Holdings Corp. 67,536 1,781
UST, Inc. 54,200 1,626
-------
27,946
-------
TRANSPORTATION-MISCELLANEOUS--0.2%
Amerco, Inc.* 8,900 273
Caliber Systems, Inc. 10,000 174
Consolidated Freightways Inc. 7,900 182
Federal Express Corp.* 17,800 1,333
Fritz Companies, Inc.* 10,000 149
Pittston Services Group 9,900 280
Ryder System, Inc. 19,800 562
-------
2,953
-------
TRAVEL & RECREATION--1.4%
Bally Entertainment Corp.* 13,000 354
Brunswick Corp. 28,900 611
Callaway Golf Co. 19,000 627
Circus Circus Enterprises, Inc.* 25,400 864
Coleman Co., Inc. (New)* 7,200 122
Gaylord Entertainment Co. Class A 20,359 499
Grand Casinos, Inc.* 11,100 201
Harrahs Entertainment, Inc.* 25,100 477
Hilton Hotels Corp. 11,500 1,229
ITT Corp. (New)* 28,900 1,539
International Game Technology 33,600 685
</TABLE>
35
<PAGE> 40
SCHWAB 1000 FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
August 31, 1996
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
La Quinta Inns, Inc. 19,200 $ 367
MGM Grand, Inc.* 13,500 510
Marriot International, Inc. 38,100 2,091
Mirage Resorts, Inc.* 49,100 1,142
Polaris Industries, Inc.* 7,000 201
Promus Hotel Corp.* 15,200 458
Walt Disney Co. 179,507 10,232
------
22,209
------
UTILITIES--4.9%
AES Corp.* 16,559 586
AGL Resources, Inc. 14,600 296
Allegheny Power System, Inc. 28,100 832
American Electric Power Co., Inc. 48,900 2,029
American Water Works Co., Inc. 19,600 419
Atlantic Energy, Inc. 7,800 138
Baltimore Gas & Electric Co. 47,150 1,226
Boston Edison Co. 12,900 298
Brooklyn Union Gas Co. 7,350 199
CIPSCO, Inc. 5,000 178
CMS Energy Corp. 27,900 834
Calenergy Co.,Inc.* 14,600 442
Carolina Power & Light Co. 38,500 1,343
Centerior Energy Corp. 23,600 180
Central & South West Corp. 55,800 1,472
Cinergy Corp. 49,565 1,487
Citizens Utilities Co. Class A* 53,909 633
Citizens Utilities Co. Class B* 8,241 97
Coastal Corp. 26,300 1,042
Columbia Gas System, Inc. 19,100 1,074
Consolidated Edison Co. 69,700 1,821
Consolidated Natural Gas Co. 22,600 1,229
DPL Inc. 21,850 516
DQE, Inc. 17,050 473
DTE Energy Co. 37,100 1,057
Delmarva Power & Light Co. 15,700 322
Dominion Resources, Inc. 45,150 1,687
Duke Power Co. 59,800 2,796
ENSERCH Corp. 24,500 493
Edison International 125,600 2,182
El Paso Natural Gas Co. 14,941 622
Enova Corp. 24,300 556
Enron Corp. 79,600 3,194
Entergy Corp. 59,421 1,508
Equitable Resources, Inc. 5,100 146
FPL Group, Inc. 48,200 2,133
Florida Progress Corp. 30,400 1,053
GPU, Inc. 28,100 885
</TABLE>
36
<PAGE> 41
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
Hawaiian Electric Industries, Inc. 7,900 $ 276
Houston Industries, Inc. 69,900 1,520
IPALCO Enterprises, Inc. 15,000 405
Idaho Power Co. 5,400 178
Illinova Corp. 16,300 426
K N Energy, Inc. 7,000 241
KU Energy Corp. 5,500 163
Kansas City Power & Light Co. 15,900 437
LG&E Energy Corp. 25,900 589
Long Island Lighting Co. 24,300 419
MCN Corp. 17,600 471
Midamerican Energy Co. 34,461 547
Montana Power Co. 7,900 171
NICOR, Inc. 10,300 323
NIPSCO Industries, Inc. 13,900 514
National Fuel Gas Co. 5,800 215
Nevada Power Co. 13,000 268
New England Electric Co. 13,800 450
New York State Electric & Gas Corp. 16,400 353
Niagara Mohawk Power Corp. 25,200 208
NorAm Energy Co. 25,215 369
Northeast Utilities 25,900 330
Northern States Power Co. 15,200 694
Ohio Edison Co. 34,000 714
Oklahoma Gas & Electric Co. 10,200 413
P P & L Resources, Inc. 39,720 894
Pacific Enterprises 18,300 547
Pacific Gas & Electric Co. 105,300 2,382
Pacificorp 73,500 1,479
Panenergy Corp. 36,800 1,219
Peco Energy Co. 60,500 1,422
Peoples Energy Corp. 9,500 323
Pinnacle West Capital Corp. 19,300 555
Portland General Corp. 13,200 479
Potomac Electric Power Co. 39,500 973
Public Service Co. of Colorado 14,300 509
Public Service Enterprise Group 73,000 1,980
Puget Sound Power & Light Co. 16,200 371
Questar Corp. 17,900 649
SCANA Corp. 25,800 703
Sonat, Inc. 22,500 993
Southern Co. 179,700 4,066
Southwestern Public Service Co. 12,000 393
Teco Energy Inc. 27,200 649
Texas Utilities Co. 63,200 2,591
Unicom Corp. 52,900 1,217
Union Electric Co. 28,400 1,061
UtiliCorp United, Inc. 13,900 401
</TABLE>
37
<PAGE> 42
SCHWAB 1000 FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
August 31, 1996
<TABLE>
<CAPTION>
Number Value
of Shares (000s)
--------- ----------
<S> <C> <C>
WPL Holdings, Inc. 4,400 $ 134
Washington Gas Light Co. 6,200 136
Washington Water Power Co. 7,700 142
Western Resources, Inc. 14,231 418
Williams Cos., Inc. 30,060 1,499
Wisconsin Energy Corp. 26,000 694
---------
77,051
---------
TOTAL COMMON STOCK
(Cost $1,209,274) 1,553,313
---------
PREFERRED STOCK--0.0%
Aetna, Inc. 6.25% Class C (Voting) 2,922 203
Airtouch Communications, Inc. 6.00% Class B
(Convertible) 4,243 122
Airtouch Communications, Inc. 4.25% Class C
(Convertible) 2,725 130
---------
TOTAL PREFERRED STOCK
(Cost $448) 455
---------
WARRANTS--0.0%
UTILITIES--0.0%
AES Corp. (Exp 7/31/00)* 25 0
---------
TOTAL WARRANTS
(Cost $0) 0
---------
</TABLE>
38
<PAGE> 43
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Maturity Value
(000s) (000s)
--------- ----------
<S> <C> <C>
REPURCHASE AGREEMENT--0.3%
PNC Bank, N.A. 4.50%, Dated 08/30/96;
Due 09/03/96; Collateralized By:
Federal Home Loan Mortgage Corporation:
$8,230,000 Par; 6.50%, Due 10/15/08 $5,435 $ 5,432
---------
TOTAL REPURCHASE AGREEMENT
(Cost $5,432) 5,432
---------
TOTAL INVESTMENTS--99.9%
(Cost $1,215,154) 1,559,200
---------
OTHER ASSETS AND LIABILITIES--0.1%
Other Assets 5,536
Liabilities (4,677)
---------
859
---------
NET ASSETS--100.0%
Applicable to 86,013,083 outstanding shares,
$0.00001 par value (unlimited shares authorized) $1,560,059
==========
NET ASSET VALUE PER SHARE $18.14
=====
</TABLE>
- ---------------
*Non-Income Producing Security
See accompanying Notes to Financial Statements.
39
<PAGE> 44
SCHWAB 1000 FUND(R)
- ------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (in thousands)
Year ended August 31, 1996
<TABLE>
<S> <C>
Investment income:
Dividends $ 26,356
Interest 365
------
Total investment income 26,721
------
Expenses:
Investment advisory and administration fee 3,133
Transfer agency and shareholder service fees 3,106
Custodian fees 234
Registration fees 255
Professional fees 94
Shareholder reports 191
Trustees' fees 40
Amortization of deferred organization costs 28
Insurance and other expenses 42
------
7,123
Less expenses reduced (1,036)
------
Total expenses incurred by Fund 6,087
------
Net investment income 20,634
------
Net realized gain (loss) on investments sold:
Proceeds from sales of investments 25,680
Cost of investments sold (24,251)
------
Net realized gain on investments sold 1,429
------
Change in net unrealized gain (loss) on investments:
Beginning of period 199,094
End of period 344,046
------
Increase in net unrealized gain on investments 144,952
------
Net gain on investments 146,381
------
Increase in net assets resulting from operations $167,015
======
</TABLE>
See accompanying Notes to Financial Statements.
40
<PAGE> 45
- ------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS (in thousands)
<TABLE>
<CAPTION>
Year ended
August 31,
1996 1995
---------- --------
<S> <C> <C>
Operations:
Net investment income $ 20,634 $ 12,704
Net realized gain on investments sold 1,429 430
Increase in net unrealized gain
on investments 144,952 115,945
---------- --------
Increase in net assets resulting
from operations 167,015 129,079
---------- --------
Dividends to shareholders from net investment
income (14,179) (6,199)
---------- --------
Capital share transactions:
Proceeds from shares sold 788,862 264,444
Net asset value of shares issued in
reinvestment of dividends 12,770 5,550
Early withdrawal fees 385 93
Less payments for shares redeemed (221,508) (120,314)
---------- --------
Increase in net assets from
capital share transactions 580,509 149,773
---------- --------
Total increase in net assets 733,345 272,653
Net assets:
Beginning of period 826,714 554,061
---------- --------
End of period (including undistributed
net investment income of $15,134 and
$8,679, respectively) $1,560,059 $826,714
========== ========
Number of Fund shares:
Sold 45,105 18,751
Reinvested 758 439
Redeemed (12,583) (8,825)
---------- --------
Net increase in shares outstanding 33,280 10,365
Shares outstanding:
Beginning of period 52,733 42,368
---------- --------
End of period 86,013 52,733
========== ========
</TABLE>
See accompanying Notes to Financial Statements.
41
<PAGE> 46
SCHWAB 1000 FUND(R)
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Year ended August 31, 1996
1. DESCRIPTION OF THE FUND
The Schwab 1000 Fund (the "Fund") is a series of Schwab Investments (the
"Trust"), a no-load, open-end management investment company organized as a
Massachusetts business trust on October 26, 1990 and registered under the
Investment Company Act of 1940, as amended.
In addition to the Fund, the Trust also offers -- the Schwab Short/Intermediate
Government Bond Fund, Schwab Long-Term Government Bond Fund, Schwab California
Short/Intermediate Tax-Free Bond Fund, Schwab California Long-Term Tax-Free Bond
Fund, Schwab Short/Intermediate Tax-Free Bond Fund and Schwab Long-Term
Tax-Free Bond Fund. The assets of each series are segregated and accounted for
separately.
The investment objective of the Fund is to provide a total return which matches
that of the Schwab 1000 Index(R), an index created to represent the performance
of the 1000 largest publicly traded common stocks of United States companies.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are in conformity with generally
accepted accounting principles for investment companies. The preparation of
financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates.
Security valuation -- Investments in securities traded on an exchange are valued
at the last sale price for a given day, or if a sale is not reported for that
day, at the mean between the most recent quoted bid and asked prices. Unlisted
securities for which market quotations are readily available are valued at the
mean between the most recent bid and asked prices. Securities for which no
quotations are readily available are valued at fair value as determined by the
Fund's investment manager pursuant to guidelines adopted in good faith by the
Board of Trustees. Short-term securities with 60 days or less to maturity are
stated at amortized cost, which approximates market value.
42
<PAGE> 47
- ------------------------------------------------------------------------------
Security transactions and investment income -- Security transactions are
accounted for on a trade date basis (date the order to buy or sell is executed).
Dividend income and distributions to shareholders are recorded on the
ex-dividend date; interest income is recorded on the accrual basis. Realized
gains and losses from security transactions are determined on an identified cost
basis.
Repurchase agreements -- Repurchase agreements are fully collateralized by U.S.
Treasury or government agency securities. All collateral is held by the Fund's
custodian and is monitored daily to ensure that its market value at least equals
the repurchase price under the agreement.
Deferred organization costs -- Costs incurred in connection with the
organization of the Fund, its initial registration with the Securities and
Exchange Commission and with various states have been amortized on a
straight-line basis over the five-year period from the Fund's commencement of
operations.
Expenses -- Expenses arising in connection with the Fund are charged directly to
the Fund. Expenses common to all series of the Trust are allocated to each
series in proportion to their relative net assets.
Federal income taxes -- It is the Fund's policy to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all net investment income and realized net capital gains, if any, to
shareholders. Therefore, no federal income tax provision is required. The Fund
is considered a separate entity for tax purposes.
At August 31, 1996, (for financial reporting and federal income tax purposes),
net unrealized gain aggregated (in thousands) $344,046 of which $363,099 related
to appreciated securities and $19,053 related to depreciated securities.
43
<PAGE> 48
SCHWAB 1000 FUND(R)
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Year ended August 31, 1996
3. TRANSACTIONS WITH AFFILIATES
Investment advisory and administration agreement -- The Trust has an investment
advisory and administration agreement with Charles Schwab Investment Management,
Inc. (the "Investment Manager"). For advisory services and facilities furnished,
the Fund pays an annual fee, payable monthly, of 0.30% of the first $500 million
of average daily net assets and 0.22% of such assets over $500 million. Under
this agreement, the Fund incurred investment advisory and administration fees of
$3,133,000 for the year ended August 31, 1996, before the Investment Manager
reduced its fee (see Note 4).
Transfer agency and shareholder service agreements -- The Trust has transfer
agency and shareholder service agreements with Charles Schwab & Co., Inc.
("Schwab"). For services provided under these agreements, Schwab receives an
annual fee, payable monthly, of 0.05% of average daily net assets for transfer
agency services and 0.20% of such assets for shareholder services. For the year
ended August 31, 1996, the Fund incurred transfer agency and shareholder service
fees of $3,106,000, before Schwab reduced its fees (see Note 4).
Officers and trustees -- Certain officers and trustees of the Trust are also
officers and/or directors of the Investment Manager and/or Schwab. During the
year ended August 31, 1996, the Trust made no direct payments to its officers or
trustees who are "interested persons" within the meaning of the Investment
Company Act of 1940, as amended. The Fund incurred fees of $40,000 related to
the Trust's unaffiliated trustees.
4. EXPENSES REDUCED BY THE INVESTMENT MANAGER AND SCHWAB
The Investment Manager and Schwab reduced a portion of their fees in order to
limit the Fund's ratio of operating expenses to average net assets. For the year
ended August 31, 1996, the total of such fees reduced by the Investment Manager
and Schwab was $648,000 and $388,000, respectively (see Note 9).
5. BORROWING AGREEMENT
The Trust has an arrangement with PNC Bank, N.A., the Fund's custodian, whereby
the Fund may borrow up to $50,000,000, on a
44
<PAGE> 49
- ------------------------------------------------------------------------------
temporary basis, to fund redemptions. Amounts borrowed under this arrangement
bear interest at periodically negotiated rates and may be collateralized by the
assets of the Fund. During the year ended August 31, 1996, no borrowings were
made under this arrangement.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, other than short-term obligations,
aggregated (in thousands) $621,392 and $25,680, respectively, during the year
ended August 31, 1996.
7. EARLY WITHDRAWAL FEES PAID TO THE FUND
The Fund assesses a 0.50% early withdrawal fee on redemption proceeds
attributable to shares purchased and held less than six months. The early
withdrawal fee is retained by the Fund and is treated as a contribution to
capital. For the year ended August 31, 1996, total early withdrawal fees
retained by the Fund amounted to $385,000.
8. COMPOSITION OF NET ASSETS
At August 31, 1996, net assets consisted of (in thousands):
<TABLE>
<S> <C>
Paid in capital $1,202,438
Accumulated undistributed net investment income 15,134
Accumulated net realized loss on investments sold (1,559)
Net unrealized gain on investments 344,046
----------
Total $1,560,059
==========
</TABLE>
At August 31, 1996, the Fund's Statement of Net Assets included: $714,000
payable for Fund shares redeemed, $98,000 payable for investment advisory and
administration fee, $103,000 payable for transfer agency and shareholder service
fees and $1,967,000 receivable for Fund shares sold.
45
<PAGE> 50
SCHWAB 1000 FUND(R)
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Year ended August 31, 1996
9. FINANCIAL HIGHLIGHTS
Per share income and capital changes for a share outstanding throughout the
period:
<TABLE>
<CAPTION>
EIGHT MONTHS PERIOD
ENDED YEAR ENDED ENDED
YEAR ENDED AUGUST 31, AUGUST 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994 1993 1992 1991++
---------- -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 15.68 $ 13.08 $ 12.80 $ 11.96 $ 11.26 $ 10.00
Income from investment
- ----------------------
operations
----------
Net investment income 0.24 0.26 0.26 0.17 0.24 0.15
Net realized and unrealized
gain (loss) on
investments 2.45 2.48 0.28 0.79 0.71 1.26
--------- -------- -------- -------- -------- --------
Total from investment
operations 2.69 2.74 0.54 0.96 0.95 1.41
Less distributions
- ------------------
Dividends from net
investment income (0.23) (0.14) (0.26) (0.12) (0.25) (0.15)
Distributions from realized
gain on investments -- -- -- -- -- --
--------- -------- -------- -------- -------- --------
Total distributions (0.23) (0.14) (0.26) (0.12) (0.25) (0.15)
--------- -------- -------- -------- -------- --------
Net asset value at
end of period $ 18.14 $ 15.68 $ 13.08 $ 12.80 $ 11.96 $ 11.26
========= ======== ======== ======== ======== ========
Total return (%) 17.27 21.23 4.28 8.06 8.52 14.25
- ----------------
Ratios/Supplemental data
- ------------------------
Net assets, end of
period (000s) $1,560,059 $826,714 $554,061 $515,272 $370,980 $192,206
Ratio of expenses to
average net assets (%) 0.49 0.54 0.51 0.45* 0.35 0.00*
Ratio of net investment
income to average net
assets (%) 1.66 2.03 2.06 2.21* 2.45 3.21*
Portfolio turnover rate (%) 2 2 3 1 1 1
Average commission rate $ 0.03
- ---------------
Ratio of expenses to
average net assets prior
to reduced fees and
absorbed expenses (%)+ 0.57 0.63 0.56 0.49* 0.52 1.05*
Ratio of net investment
income to average net
assets prior to reduced
fees and absorbed
expenses (%)+ 1.58 1.94 2.01 2.17* 2.28 2.16*
</TABLE>
++ For the period April 2, 1991 (commencement of operations) to December 31,
1991.
+ The Investment Manager and Schwab have reduced a portion of their fees and
absorbed certain expenses in order to limit the Fund's ratio of operating
expenses to average net assets.
* Annualized
46
<PAGE> 51
- ------------------------------------------------------------------------------
To the Trustees
and Shareholders of the Schwab 1000 Fund(R)
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
the Schwab 1000 Fund (one of the series constituting Schwab Investments,
hereafter referred to as the "Trust") at August 31, 1996, the results of its
operations, the changes in its net assets and the financial highlights for the
periods presented, in conformity with generally accepted accounting principles.
These financial statements and the financial highlights (hereafter referred to
as "financial statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at August
31, 1996 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
San Francisco, California
September 24, 1996
1996 SPECIAL TAX INFORMATION (UNAUDITED)
- ------------------------------------------------------------------------------
NOTICE TO CORPORATE SHAREHOLDERS
100% of the Fund's distributions for the fiscal year ended August 31, 1996
qualify for the corporate dividends received deduction.
- ------------------------------------------------------------------------------
47
<PAGE> 52
THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.
A SCHWAB REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.
<PAGE> 53
SCHWABFUNDS FAMILY(R)
The SchwabFunds Family includes a variety of funds to help meet your investment
needs. You can diversify your portfolio with one investment in any of our three
asset allocation funds, choose from several equity markets with our equity
funds, or diversify your portfolio across asset classes and fund management
styles with our OneSource Portfolios. You can also select from different
maturities with our bond fund choices, and take advantage of an array of money
market funds.
SCHWAB ASSET ALLOCATION FUNDS
Schwab Asset Director(R) -- High Growth Fund
Schwab Asset Director -- Balanced Growth Fund
Schwab Asset Director -- Conservative Growth Fund
SCHWAB EQUITY FUNDS
Schwab Analytics Fund(TM)
Schwab 1000 Fund(R)
Schwab International Index Fund(TM)
Schwab Small-Cap Index Fund(R)
Schwab S&P 500 Fund
SCHWAB FUND OF FUNDS 1
Schwab OneSource Portfolios -- International
Schwab OneSource Portfolios -- Growth Allocation 2
Schwab OneSource Portfolios -- Balanced Allocation 2
SCHWAB BOND FUNDS
Schwab Government Bond Funds -- Long-Term
and Short/Intermediate
Schwab Tax-Free Bond Funds -- Long-Term and Short/Intermediate
Schwab California Tax-Free Bond Funds -- Long-Term
and Short/Intermediate
SCHWAB MONEY MARKET FUNDS
Schwab offers an array of money market funds 3 that seek high current income
with safety and liquidity. Choose from taxable or tax-exempt alternatives. Many
can be linked to your Schwab account to "sweep" cash balances automatically when
you're between investments. Or, for your larger cash reserves, choose one of our
Value Advantage Investments.(TM)
Please call 1-800-2 NO-LOAD for a free prospectus and brochure for any of the
SchwabFunds(R).
Each prospectus provides more complete information, including charges and
expenses. Please read it carefully before investing.
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
1. Funds that invest primarily in other mutual funds.
2. In subscription until November 15, 1996, unless the subscription period is
extended, at an introductory share price of $10. After that date the share
price will fluctuate.
3. Investments in money market funds are neither insured nor guaranteed by the
U.S. government, and there is no assurance that the Funds will be able to
maintain a stable share price of $1.
<PAGE> 54
--------------
BULK RATE
[SCHWABFUNDS FAMILY(R) LOGO] U.S. POSTAGE
101 Montgomery Street PAID
San Francisco, California 94104 CHARLES SCHWAB
--------------
INVESTMENT ADVISER
Charles Schwab Investment Management, Inc.
101 Montgomery Street, San Francisco, CA 94104
DISTRIBUTOR
Charles Schwab & Co., Inc.
101 Montgomery Street, San Francisco, CA 94104
This report is not authorized for distribution to prospective
investors unless preceded or accompanied by a current prospectus.
(C)1996 Charles Schwab & Co., Inc. All rights reserved.
Member SIPC/NYSE
TF4264R(9/96) CRS 10552 Printed on recycled paper.
